A.M. Best Affirms Financial Strength Ratings of The Hartford; Downgrades Debt Ratings.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--May 12, 2003

A.M. Best Co. has affirmed the financial strength ratings of A+ (Superior) of The Hartford Insurance Pool (Pool) and the main operating life insurance subsidiaries of Hartford Life Inc. (HLI).

Concurrently, A.M. Best has downgraded to "a-" from "a+" the senior debt ratings of Hartford Financial Services Group, Inc. (The Hartford) (NYSE:HIG) and Hartford Life Inc. (all of Hartford, CT) and removed the ratings from under review. The trust preferred securities ratings of Hartford Capital I and III and Hartford Life Capital I and II have been downgraded to "bbb" from "a-"and also removed from under review. All ratings have been assigned stable outlooks.

These rating actions follow The Hartford's announcement that it has completed its asbestos reserve study and will strengthen reserves for asbestos liabilities in the first quarter of 2003 by $2.6 billion net of reinsurance. This charge is based upon an internal ground-up study of ongoing asbestos exposures. The study involved an extensive assessment of The Hartford's asbestos liability exposures, taking into account a comprehensive review of all policyholders, changes in litigation and potential exposure arising from non-product exposure. The Hartford's methodology was also reviewed by an internationally known actuarial consulting firm.

The Hartford has announced plans to recapitalize its balance sheet in the second quarter of 2003 by raising $1.9 billion of external capital coupled with numerous internal initiatives that collectively would generate substantial capital. The external capital raising will consist of $1.0 billion of common equity with the remaining $850 million a combination of equity units and long-term debt. This action reflects management's stated intent to more conservatively manage Hartford's balance sheet, financial profile and surplus position. This added conservatism will prepare the balance sheet to absorb potential additional charges over the near term, including, if necessary, deferred acquisition charges. Over the next two years, financial leverage is expected to decline -- and remain -- at lower levels. These rating actions are contingent upon The Hartford's successful capital market initiatives. If the company is unable to complete this financing, a review of all of the company's ratings will result.

Additionally, The Hartford announced numerous operating and investment initiatives, which are expected to result in an improvement in earnings consistency and an enhanced surplus position in both life and property/casualty operations. To achieve those objectives, The Hartford will exit assumed reinsurance and deemphasize certain specialty lines within the property/casualty operations, exit higher risk investment classes, and commence cost reductions. In addition, the company will voluntarily pre-fund its pension liabilities for approximately $300 million.

A.M. Best's current ratings take into consideration the impact of the significant asbestos reserve charge and other actions in A.M. Best's view of capitalization, which had already contemplated a sizable asbestos reserve deficiency. While the asbestos reserve strengthening was much greater than A.M. Best's estimate of The Hartford's liability, A.M. Best considered The Hartford to have a capital cushion sufficient to absorb such an adversity. This capital strength was derived from the company's conservative operating strategies, consistent operating earnings stream, diversity of operations, manageable catastrophe exposure and proven internal capital generation. The replacement of lost surplus will be enable The Hartford's property/casualty operations to maintain surplus well in excess of that which is required for its rating.

A.M. Best has met with management regarding the asbestos study and is significantly more comfortable with the adequacy of The Hartford's asbestos reserves. A.M. Best views this asbestos reserve strengthening as positive since it should lessen any future drag on earnings as well as eliminate the gap between its carried asbestos reserves and A.M. Best's view of the exposure.

HLI, a major player in the U.S. life insurance market with particular strength in the variable annuity sector, has seen its overall operating performance come under pressure as a result of the prolonged slump in equity markets and heightened investment losses stemming from weak economic conditions. Going forward, A.M. Best believes HLI's near-term earnings could remain affected by ongoing economic uncertainty and continued lackluster equity markets. Over the past few years HLI's risk-based capitalization has become increasingly stretched from a combination of growth, operating and investment losses and regular shareholder dividends. The Hartford intends to infuse $150 million of fresh capital into HLI -- which along with proposed changes in investment strategy to improve asset quality -- should help HLI's capitalization. A.M. Best expects HLI to continue to build and maintain more robust capitalization primarily from improved statutory results, and if needed, financial support from The Hartford.

The Hartford's financial leverage has historically been at the high end of A.M. Best's tolerance for its debt ratings. That tolerance had been supported by The Hartford's access to the capital markets, consistent earnings capability and diversified business platform. Of greater consideration is The Hartford's low level of holding company liquidity and cash flow. In 2002, liquidity somewhat improved as partial funds from its equity notes offering were maintained at the holding company for added flexibility. However, the issuance of new securities will increase The Hartford's consolidated annual interest expense and shareholder dividends to approximately $490 million, an amount greater than A.M. Best's expectations. At less than two times, the available dividend capacity coverage of fixed charges remains low and has resulted in the debt ratings downgrade.

For a complete list of The Hartford Insurance Pool, Hartford Life Inc. and Hartford Financial Services Group, Inc.'s please visit www.ambest.com.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.